The Standard Oil monopoly may be said to be the crowning monument of corporation conspiracy. It is, indeed, doubtful whether the combined brotherhoods of mediæval knights ever were guilty of such acts of plunder and oppression as the Standard Oil Company and its railroad allies stand convicted of before the American people. The facts that have been unearthed by official investigations show a frightful prevalence of corporate lawlessness and official corruption, and there can be no doubt that, could certain high railroad dignitaries have been compelled to testify, and could the truth have been fathomed, it would have been found that not only the public, but railroad stockholders as well, were victimized by those transactions.
The founder of the Standard Oil monopoly was some twenty years ago part owner of a petroleum refinery at Cleveland, Ohio. His fertile brain conceived the thought that with the coöperation of the railroad companies a few men of means could control the petroleum business of the United States. With this end in view he approached the managers of the New York Central, the Erie and the Pennsylvania Central railroad companies, and on January 18, 1872, entered with them into a secret compact by which they agreed to coöperate with the South Improvement Company (an organization formed by that gentleman to aid in the accomplishment of his designs) to grant to said companies certain rebates and to secure it against loss or injury by competition. The South Improvement Company, in consideration of these favors, guaranteed to the railroad companies a fair division of its freights. The existence of this contract soon became known and caused a violent protest among the oil-producers. An indignation meeting was held and a committee was appointed to wait on the railroad managers and demand fair treatment for all.
The railroad companies yielded and promised to give equal rates to all shippers and to grant to no person either rebates or any other advantage whatever. New rates were fixed for the transportation of both crude and refined oil, and it was agreed on the part of the railroad companies that at least ninety days' notice should be given of any change that might be made in the rates. Steps were also taken to have the charter of the South Improvement Company canceled because it had been found that it was neither the owner of a refinery nor of an oil well, and could therefore not comply with the legal requirements concerning the organization of stock companies. While the South Improvement Company thus came to a sudden and rather inglorious end, its founders soon contrived other means to carry out their ingenious plans. They bought a refinery, reorganized by taking the prepossessing title of Standard Oil Company, and were now prepared to resume their operations under the guise of legal authority.
The railroad companies seemed to have relished their novel business connections, for, without paying the least attention to the agreement into which they had entered with the other producers and refiners of oil, they extended the privileges of the defunct South Improvement Company to its successors. The new company received secret rebates ranging from 50 cents to $1.32 per barrel. The agreement also contained the stipulation that if lower rates should ever be granted to their competitors, an additional rebate should be given to the Standard Oil Company. Endowed with these privileges, the favored company proceeded to unite under its banner, by consolidation, purchase or lease, the leading refineries of Cleveland.
The effect of the discriminations practiced against independent refineries soon became apparent. In less than two years there were closed in Pittsburgh twenty-one refineries, that represented an aggregate capital of $2,000,000 and had given employment to over 3,000 people. A large number of the remaining refineries were forced to consolidate with the Standard Oil Company.
The next step toward the entire suppression of competition was an attack planned against the independent pipe lines. The Standard had early secured control of the United Pipe Line. To exterminate competing lines, they again appealed to the railroad companies, and on the 9th day of September, 1874, J. H. Rutter, general freight agent of the New York Central, issued a new oil tariff which discriminated greatly in favor of the oil brought by the United Pipe Line to the refineries. Up to that time this company had done from 25 to 30 per cent. of the total business of the various pipe lines. Within one year after the adoption of the new tariff it did fully 80 per cent. of the entire business. This forced the independent lines either to sell out to the Standard or to suspend business, for the latter's rebate was larger than their toll. The oil tariff of the Pennsylvania Central compelled the independent Pittsburgh refiners to ship their refined oil over that company's line, if they would avail themselves of the rebate which it granted on the rates for the transportation of crude oil to Pittsburgh. The evident purpose and the effect of such a tariff was to prohibit oil shipments over the Baltimore and Ohio. Had this road made ever so reasonable a tariff, the combined charges for the transportation of the crude petroleum from the oil regions to Pittsburgh by the Pennsylvania Central, and for that of the refined oil to the sea coast by the Baltimore and Ohio, would still have been prohibitive in competition with the special transit rates granted to the Standard Oil Company. As a remedy it was proposed to organize a new pipe line, it being believed that the crude oil could be brought to Pittsburgh by that line, refined there, shipped to the seaboard by the Baltimore and Ohio, and sold there at as good or even a better profit than the product of the Standard, notwithstanding the favors received by the latter from the allied trunk lines. This movement resulted in the creation of the Columbia Conduit Company, which at once proceeded to lay its pipes from the oil wells to Pittsburgh. Under the laws of the State of Pennsylvania it became necessary for this company to obtain the permission of property-holders to lay the pipes through their lands. Consent was everywhere readily given, and the pipes were laid without hindrance until the track of the Pennsylvania Railroad was reached, within a few miles of the Pittsburgh refineries. This company peremptorily refused to let the pipes be laid under its track. The pipe line company after some delay contrived a way to obviate the difficulty. It laid its pipes on each side of the road as close to the track as it could without trespassing against the legal rights of the Pennsylvania Central, and then conveyed the oil from one side of the track to the other by means of large oil tanks on wheels, which could not be prevented from passing over the railroad track at the public crossing. After several months the railroad company allowed the pipes to be laid under its track, but it soon appeared that another combination had been effected to destroy the value of this concession. A railroad war had given the three trunk lines an opportunity to force the Baltimore and Ohio into the pool. A uniform rate of $1.15 was established for shipments of refined petroleum from any point to the seaboard. While this was in itself an unjust discrimination against Pittsburgh, which is 250 miles nearer tidewater than Cleveland, the railroads in addition granted the Standard secret rebates which enabled it to sell its oil on the coast for less than the sum of its first cost at the refineries and the open rate of transportation to the points of export. The independent refiners of Pittsburgh found themselves again cut off from the market, but necessity soon made them discover another outlet. Shipping their oil down the Ohio River to Huntington, W. Va., they had it taken by the Chesapeake and Ohio Railroad to Richmond. In spite of the fact that this route was more than twice as long as the direct line from Pittsburgh to the seaboard, and in spite of the further fact that it necessitated an expensive transfer, a rate equal to about two-thirds of the trunk line rate for the direct shipment proved remunerative to the Chesapeake and Ohio. The independent refiners kept up their competition for some time, but the great disadvantage of river travel and the insufficient export facilities of Richmond finally forced them to give up the contest.
Until the year 1877 the Standard Oil Company had worked hand in hand with the railroads. It had obtained all its privileges by asking for them and by holding out inducements to railroad managers to grant them. It now commenced to dictate terms to refractory railroad companies.
The Pennsylvania road ventured to carry oil not the property of the Standard on terms which that company did not approve. The latter ordered the road to refuse to carry the product of their competitors. This the railroad company declined to do, and the Standard at once withdrew its custom. The Pennsylvania retaliated by carrying the oil of the independent refineries at merely nominal rates and even went so far as to make its rates dependent upon the profits realized by the shippers. A fierce freight war was thus precipitated, in which the Erie and New York Central supported the Standard Company. The Pennsylvania road was soon forced to surrender and sign an ignominious treaty.
The Baltimore and Ohio, which had again commenced to carry the product of those Pittsburgh refineries which received their crude oil through the Columbia Conduit Company, was in a similar manner forced to reject their freights. The pipe line, whose value was thus almost entirely destroyed, was soon after sold to the Standard Oil Company. This company had now an almost complete monopoly of the oil business of the United States, and still it was not satisfied. It appears that some of the producers of crude oil had been in the habit of shipping a part of their product in spite of the advantages which the Standard had through its rebates. To prevent even these shipments, or rather to exact another tribute from railroad stockholders, the American Transfer Company, one of the auxiliaries of the Standard Oil Trust, in 1878, demanded and received from the Pennsylvania road a "commission" of 20 cents a barrel on all shipments of petroleum made by any shipper. It had been shown to the satisfaction of the Pennsylvania Railroad Company that similar commissions, ranging from 20 to 35 cents a barrel, were being paid by the New York Central and Erie roads.